Income inequality, the new handbrake on growth

[Neoliberals generally call for investigations into productivity because they hope to advance policies that will wipe out even more jobs with automation/robotics/offshoring. Interestingly, this research shows that hiding profits in offshore tax shelters leads to an understatement of GDP, which creates a misleading impression of reduced productivity; meaning the neolib's are having it both ways and then some. *RON*]

Labor senator Jenny McAllister says the widening gulf between rich and poor in most countries is "the challenge of our times". Photo: Dallas Kilponen

The yawning gap between rich and poor in Australia should be formally tracked by the nation's prime economic review body, the Productivity Commission, according to a Labor senator who has drafted legislation to bring it about.

The proposal would ensure that any negative impacts on the poor arising from government policies are specifically measured and taken into account in program design.

Known for its market-oriented, pro-business disposition, the Productivity Commission is the government's prime, independent economic adviser.

A five-yearly inequality report would also be mandated to lay bare the scale, and map the location of wealth disparity in an Australia, where currently, the richest three people hold as much wealth as the poorest three million.

The idea is being pushed by New South Wales Labor senator Jenny McAllister, who called the widening gulf between rich and poor in most countries, "the challenge of our times".

"Inequality is at a near 75-year high. More equal societies have less crime, are healthier, and have higher levels of trust and civic participation," she said.

"Australia has a long tradition of innovation in tackling inequality. But it doesn't mean new approaches or institutions won't be needed, or that existing ones won't need to evolve."

The left-aligned senator, who is also Deputy Opposition Whip, said the Productivity Commission's work was "both highly regarded and influential" within government and the broader community.

She said the provision of a five-yearly inequality report along the lines of Treasury's high-profile Intergenerational Report, would assess where inequality is deepest in our regions and our cities, and "whether government policies are making the situation better or worse".

"It seems clear that Australians do want us to address inequality. When surveyed, almost three-quarters of us agree that 'differences in income are too high'."

Economists increasingly acknowledge that unequal wealth distribution is itself a drag on economic growth and a growing risk factor for political stability and the investment outlook.

Australia Institute chief economist Richard Denniss, said even the famously dry economic hardheads in international bodies such as the IMF and World Bank had "changed their tune in recent years" and now saw economic inequality as a handbrake on growth.

"The overwhelming tide of evidence has changed most opinions on this," he said.

"If the Productivity Commission is serious about economic growth, sustainable economic growth, then it should take the impact of policy change on distribution, very seriously.

"The idea that there were hardheads and bleeding hearts, you know, those days have evaporated. The real hardheads now admit that if you ignore inequality, you get less economic growth."

The move comes just days after British voters turned out in surprising numbers to support the old-style redistributive socialist polices of Labour leader Jeremy Corbyn.

Observers in Britain have cited widespread dissatisfaction over unequal wealth distribution in that country as a key motivating factor in the backlash against the Tory government of Theresa May.

Inequality is also being cited as a reason why voters across the world appear to be turning against establishment politicians, resulting in perverse electoral outcomes from the shock Brexit referendum result in Britain the election of Donald Trump in the US.

The Productivity Commission declined to comment.

Senator McAllister's bill is set to be introduced in the Senate on Wednesday.

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